ADDRESSING THE NERVOUS ONES

People are
naturally scared of complexity and meddling with a complicated system like an
economy.

THERE IS NO NEED TO WORRY IF YOU KNOW WHAT YOU ARE
DOING.

Once you understand what an economy is and how
it is supposed to work it is easy to see why the design of the world’s
economies is wrong.

By putting the simple things right -

Those things that destroy lives, savings, homes, and businesses

Those things that are there contrary to economic and management theory

Those things that would make any complex system more complicated and more
unstable,

…leads naturally to a better economy.

It also leads to more profitable and more
durable businesses and institutions. They can reduce insurance and capital
costs. They can expect the economy to behave in a more ordinary way. They can
plan further ahead and they can borrow more at less cost.

---------------

THE FIRST THING THAT AN ENGINEER,

A DOCTOR, OR A
SOCIAL WORKER DOES

The first thing that an engineer, a doctor, or
a social worker does when confronted with a badly behaving complex system is to
check whether everything is being done according to ‘the book’.

Are basic principles being followed?

Has the motorcar got round wheels that are centrally positioned?

Is the person’s body being fed a balanced diet?

Are the aircraft’s wing fitted the right way up?

Is the ship properly designed to stay on the surface of the sea?

It does not take a genius to see if such
things are wrong.

Such wrong things will give rise to multiple problems. When one thing is wrong it creates a whole lot of knock-on effects and a huge amount of complexity. When several things are wrong as is the case with the economic framework, it creates a baffling amount of complexity. We can make it all relatively simple if we try.

But if you try to correct for everything
that goes wrong as a result of such mistakes, you will be very busy and probably confused. And
you cannot possibly make a perfect job of it without using an immense data base
and huge amounts of resources that might be better deployed doing something
else.

------------------

TRADITIONAL ECONOMICS

The Standard Model for the economy as traditionally
taught at universities states that economies are unstable. There are very
clever people who know a lot about mathematics and statistics. A great deal has
been invested by them in learning how such skills can help with forecasting
what an economy may do next. How to sort out what follows from what, and so
forth.

Some economists are taught how to take
advantage of these things by re-positioning their employers and themselves.
That costs everyone else something and makes the rich and powerful richer and
more powerful. Changing this will produce considerable opposition, make no
mistake about that.

Other economists are taught how to try to
rebalance the economy after it has gone astray. Or to try to intervene so as to
prevent that from happening.

To do this they try to invent complicated
methods and instruments. Their interventions confuse everyone else and they
admit that they do not fully understand the problems themselves.

Many of them conclude that economics is not an
exact science. That may be true, but it can do a whole lot better.

One could do exactly the same kind of thing to
forecast how an aeroplane would behave in various weather conditions if the
wings were fitted upside down (maybe fly upside down if you can get it to take
off), or if the wings were on back to front.

The idea of making adjustments to the controls
and intervening to stop the aeroplane from stalling or diving at an incredible
speed is what is taught at university economics classes.

That is clearly not the way to manage an
economy or any complex system.

Why do they do that?

Because they can. They are good at statistics
and mathematics. That is what is taught. But you do not need that much maths to
see if the wings are on the wrong way around and to put that right.

It is the same with economics as readers of
this book will discover.

TO MAKE IT CLEAR TO EVERYONE

The following characters have been given random names

unrelated to any particular person

Uncle Charleshad just bought his home
when the central bank raised interest rates. House prices tumbled and his
mortgage repayments jumped up out of reach. The effect on the economy was so
terrible that he lost his job. If the monthly repayment cost had been
calculated differently, this would not have happened.

Grandpatook a loan in Swiss
Francs and his Indian brother took one in American Dollars.

They did this on the advice of a professional loan arranger who
said that interest rates were much lower in those currencies. Then the Swiss
Franc jumped up by 30% on the day (like it did in mid-January 2015). Grandpa’s
costs jumped up by 30% and the total debt that he owed became 30% larger. The
jump reduced in the following days but it was still expensive. He still had to
repay the loan. He lost his pension paying it off. Businesses in Switzerland
that depended on exports crashed.

If the value of the Swiss Franc had been allowed to adjust to the
balance of trade and if the facility to manipulate that currency value did not
exist, this would not have happened. In fact, currency wars would not be
possible either. Businesses could make plans based upon prices that could be
forecast more easily and more exactly. Jobs would be safer, world trade, one
third of all business activity on the planet, would be easier and cheaper.
Think of that – in effect, cost savings and simpler forward planning for one
third of all businesses in the world.

His Indian brotherwas hit by the same
problem. The Indian Rupee crashed. The professional mortgage arrangers did
well. They got a good commission and walked away.

Great Aunty Isobellived in the 1930s and had
all her wealth tied up in shares. When the stock market crashed she lost
everything because she had loans to pay off. She committed suicide.

Without the way that credit is allowed to grow almost without limit, this would
not have happened. It could not have happened. This is the source of all of the
major booms and busts if they are not caused by the currency instability. Maybe
both together.

Sally, the daughter,had immigrated into
France. She did the 'sensible' thing of taking a fixed interest rate mortgage.
It was all she could afford but she thought it made her safe. Then the whole of
Europe was in trouble and incomes started falling. She had to take a wage cut.
The cost of the mortgage did not alter.

Her Greek Sisterwas about
to do the same when interest rates sky-rocketed, house prices crashed and
people started leaving the country. She was lucky to have avoided that mortgage
and she also left Greece for Germany like many others did. Single currency
regions cannot adapt. They cannot devalue the currency. And when governments
also borrow vast sums using fixed interest debt, they are extremely vulnerable to
deflationary forces.

This same problem left the Greek Government with too few people to
tax and their huge fixed interest rate debt became impossible to pay off or
even to service. Greece has other problems like allowing people to retire at age 50 and not collecting taxes. This kind of problem does not have to be added to the rest.

Single currency regions,not just in Europe but everywhere, even quite small ones like the
UK, tend to find that people leave the hard hit areas and move to the
prosperous cities where houses cost far more and continue to rise as the
population shifts. Not everyone can buy a home there. The rents are high and
when they get that job which they could not get back home, they struggle to
make a living. They become economic slaves.

What they leave behind is a
poverty stricken area and the house they once owned and loved has little value.
Infrastructure that cost billions to create back home falls into decay. It
could have continued to function and been useful. No need to build more
infrastructure elsewhere. No need to destroy families and old-friend
relationships – no longer seeing the ones you know living around the corner.
Now you are a stranger living in a foreign culture. The local population is not
friendly – social strife can emerge. Loneliness can rise. A recent report
claimes that mental stress knocks over 3% p.a. off Europe’s GDP.[1]

Why would a government join a
financial community like Europe in which they are unable to adjust the costs of
things (the value of the currency) and
as a result, lose their best people and see their tax revenues emigrate? A
single currency can help businesses greatly. It simplifies everything. So a
solution is needed.

To be continued...

[1]GDP means Gross
Domestic Product and actually means the total income earned by a whole nation or
in this case, Europe.

The book is something way ahead of its time, addresses all the major current issues bar the wealth gap (it gets some attention too) and it is very practical. It can and it must change the world for the better. ASAP